BNY Mellon reveals sector allocation falling to record low of 48.8% at end of 2008
Pension scheme equity exposure has fallen below 50% for the first time on record, with average allocation to the asset class hitting a record low of 48.8% at the end of 2008.
Findings from BNY Mellon Asset Servicing also showed the allocation to overseas equities was slightly higher than that to UK equities for the first time ever (24.8% compared to 24%).
The second half of the year also saw a turning point for allocations to UK bonds, with the allocation exceeding that to UK equities for the first time.
The study also showed that in 2008 equity market returns were in negative territory for each of the key sectors. The poorest equity performances came from emerging market and Pacific basin ex Japan equities with returns of -35.4% and -31.3% respectively.
UK equities fared only slightly better, returning -29.9% over the same period while Japanese and US equities provided the strongest returns comparatively.
BNY Mellon says this could partly be attributed to sterling weakness against the yen and the dollar, boosting returns in these markets to the UK investor.
Fixed interest fared better during 2008, with UK bonds returning 12.8%.
Over this period overseas bonds provided the strongest overall result with 58.1%, although this was primarily driven by sterling weakness. Index-linked gilts also provided positive results and returned 3.7% over the same period.
In addition, 2008 saw property struggle for the second consecutive year, with this sector achieving a return of -24%.
Meanwhile, the study found UK pension funds achieved a weighted average return of -13.6% in 2008.
The performance measurement says it was the first time it had recorded negative yearly returns for UK pension funds since the three-year downturn at the beginning of the decade.
It added results were just in positive territory over the medium term, with the average pension fund achieving a return of 0.1% per annum over three years to 31 December 2008.
The weighted average return improves to 5.6% per annum over a five-year period.
BNY Mellon Asset Servicing's Performance and Risk Analytics manager Alan Wilcock says: "2008 was an extraordinary year in many respects, with overall pension fund returns producing the worst result in the last 30 years, despite the long-term shift away from equity allocation, which progressed further during the year."
